Suspended 401(k) Matches Cause Cracks in Retirement Nest Eggs

Eased withdrawals from plan accounts also may imperil retirement security

By Paul Bergeron August 20, 2020
couple going over expenses

In recent months, workers in the U.S. have faced economic uncertainties due to the economic downturn caused by the COVID-19 pandemic. Many employees also are finding there could be cracks in their retirement nest eggs, given the number of employers suspending or eliminating their company's matching contributions for 401(k) accounts.

Pandemic-related guidance that eased hardship withdrawals from plan accounts may also imperil retirement security.

Recent surveys have tracked the number and type of companies that are adjusting their company match. Among the results:

  • A Fidelity Investments survey of 293 plan sponsors conducted from June 17 to July 2 showed about 11 percent of its corporate clients had suspended the match. Of those, one-third said they plan to reinstate it in 2021; 48 percent said they will reinstate it as soon as possible; and 6 percent said they have no plans to reinstate their match.

The Center for Retirement Research at Boston College in April released a report listing many large, well-known companies that had suspended 401(k) matches in 2020, including Best Buy, Tenet Health, Marriott Vacations Worldwide, Choice Hotels, La-Z-Boy, Quest Diagnostics and Sabre.

Hard-Hit Industries

In industries suffering steep economic losses due to COVID-19, such as airlines, restaurants, hospitality, travel, retail and non-pandemic health care, employers are resorting to every means possible to avoid employee layoffs and furloughs. Suspending employee matches is one of the strategies they can use to reduce bottom-line expenses.

"More than ever, employers view their employees as valuable assets, and they want to do everything they can to avoid layoffs," said Jeanne Thompson, senior vice president for workplace consulting at Fidelity Investments in Boston. "Facing hard times, delaying these matching payments is one more lever they can pull to avoid letting go of their people."

Making it an even tougher decision is knowing that the 401(k) match is generally viewed as the second-most valuable employee benefit, behind only health care, Thompson said.

She pointed out that the number of employers choosing to delay matching payments during the pandemic is only slightly above what has happened during previous economic slowdowns. During the Great Recession in 2008-09, for example, 8 percent of plan sponsors with Fidelity-administered plans made that move.

Deborah Dupont, SRI's associate managing director for retirement plans research, said companies with more than 1,000 employees were more likely to have eliminated 401(k) matches than smaller companies. "However, with a survey like this, the results don't always fully take into account smaller companies that might have already gone out of business or who are near that point," she said. "Some we talked to that are still operating remain concerned about what the future holds for their financial situations and the effects of COVID-19, and they are still considering it."

[SHRM members-only toolkit: Designing and Administering Defined Contribution Retirement Plans]

To Suspend or Not

Jennifer Koster, SHRM-SCP, is vice president for HR at Liv Communities in Grand Haven, Mich. She said this month that her company, which manages apartment properties, has not considered suspending 401(k) contributions at this time, but she recognized that each company needs to make its own decision as it weighs all team-member total rewards programs. Currently, Liv Communities matches 100 percent of the first 4 percent that team members contribute to their 401(k).

"Our 401(k) committee believes that investing for retirement in this manner is extremely important for our team members at Liv," she said. "Our 'why' is to help people live fuller lives, and our benefit offerings, including our 401(k) with the company match, are a part of fulfilling that 'why' with our team members."

Stacey Berk, a managing consultant at Expand HR Consulting in Rockville, Md., said "between 5 percent to 10 percent of our clients have made changes to their benefits offerings, with a smaller number adjusting their 401(k), given the significance of how valuable the savings plan is to an organization."

Even with higher unemployment rates, "some industries, such as technology, medical and pharmaceuticals, and even nonprofits, are facing tight hiring markets. Enhanced benefits like a strong savings plan can be a sound strategy for employers to compete when their current cash flow is reduced," she said.

Berk expects to see some companies eliminate or reduce their year-end discretionary contributions while continuing 401(k) matching, "to encourage employees to continue to save for retirement."

Employee Withdrawals

Allowing employers to give plan participants expanded options to withdraw funds from their 401(k) or similar plan accounts was part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted in March. Coronavirus-related distributions are not subject to the 10 percent early-distribution penalty and may be repaid over three years. Distributions may not exceed $100,000 per eligible participant.

Thompson said 98 percent of Fidelity's clients enabled their employees to do this, and from that, approximately 3 percent of employees made a withdrawal. The median withdrawal amount was $4,800 (meaning half of the withdrawals were less than or greater than $4,800), and the average withdrawal was $12,000. Some employees made multiple withdrawals.

Robyn Credico, North America defined contribution practice leader with Willis Towers Watson, noted, "Even companies that are not being largely negatively affected by the pandemic are doing so because they want to be supportive and flexible, and because they don't know the full financial picture of their employees and who might need it."

She added that "when we get through the recovery, companies should remind employees to save again, and to repay themselves with 401(k) deposits" to offset any withdrawals.

SRI's May/June survey showed, based on self-reported data, that 9 percent of employees had taken a CARES Act withdrawal.

Financial services firm T. Rowe Price said that, as of early July, 4.5 percent of its participants had taken advantage of these CARES Act provisions, and 3 percent of those withdrew the $100,000 maximum. The average age of persons taking distributions was 42.6 years old.

One indication of 401(k) withdrawals' popularity, Thompson said, was the spike in website traffic that Fidelity's news stories about the new options received.

"People mostly log on to check their balances, and while we want them to read articles, many do not, but the articles about managing through COVID were viewed 1.3 million times in the second quarter. That is much more than we get for any other [information content]."

Personal Financial Training

For the fall and early 2021, Berk said a key focus for her clients is providing personal financial management training, which includes discussions about 401(k) plans.

"A critical part of economic equity within an organization is to ensure employees at all levels, not just high-income earners, understand 401(k) savings plan benefits and have the opportunity to gain financially," she said.

"Training is also a great way for organizations to spotlight this benefit, and their commitment to employees at all levels," Berk added. "A tie to the organization's diversity, equity and inclusion strategy could be for employee resource groups to sponsor and partner with human resources on these trainings."

Paul Bergeron is a freelance reporter who covers the HR industry.

Related SHRM Articles:

IRS Issues Further Guidance on 401(k) Withdrawals, While Participants Hold Steady, SHRM Online, July 2020

Suspending Safe Harbor 401(k) Contributions: A Primer for Employers, SHRM Online, June 2020

COVID-19 Upends Retirement Expectations Across Generations, SHRM Online, June 2020

When Employers Must Cut Their 401(k) Contributions to Stay Afloat, SHRM Online, March 2020

Retirement Plans Are Leaking Money. Here's Why Employers Should Care, SHRM Online, October 2017



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